By Sharyn Macnamara
When it comes to exporting capital equipment and machinery and equipment or capital projects in mining, the South African Capital Equipment Export Council (SACEEC) should be a first port of call for local businessmen and international customers and investors in South Africa.
Eric Bruggeman, CEO of SACEEC. Image supplied SACEEC
SACEEC represents the capital equipment, machinery and equipment and project sector in the country for both new projects and the aftermarket. It is also the endorsed representative body for consulting engineers, associated bodies and merchant bankers – with reference to financing capital projects, equipment suppliers and suppliers of services to the capital project sector. 1 With a direct line of communication to the South African Department of Trade, Industry and Competition including other bodies and associations, the council offers strategic networking opportunities.
Changes over time
Eric Bruggeman, CEO of SACEEC, who has been with the council since inception, explains that the council was first established in 1999 to specifically service the mining sector and yellow metal equipment, trucks and heavy equipment supply to the mines. “Our market, however, has since changed drastically, in line with the major trends in the sector. We have had to diversify and move away from mining exclusivity to include other industries and locally produced mechanical machinery and equipment. Our membership has grown to 164 members exporting worldwide.” He notes that 60% of the council’s membership belongs to the mining sector presently, many producing auxiliary equipment and components for mining, from pipes to polyurethane to radiators and even coatings.
Diminished local manufacturing capacity
A grave difference between the current state of affairs and the early days of the council’s existence, is that South Africa now imports more than it manufactures. Bruggeman highlights that in the early years South Africa produced most of the local sector’s requirements, however with the trends to import over recent decades, the country’s manufacturing capacity is now substantially diminished. He laments, “At one stage, even diesel and petrol motors were produced and readily available in South Africa, but now this is sadly not the case.” The requirements to join SACEEC have therefore also subsequently changed. Businesses who wish to become members of the council must be registered locally and now requires only 40% local content, as opposed to the original 70%.
He adds, “In the year 2000 South Africa was ranked as a top global mining power, particularly in the gold and coal commodities.” However, the country has slipped significantly down the global ranks. For instance, the country finds itself in the bottom 10 of the Fraser Institute’s Annual Mining survey for 20212 with the likes of the DRC and Venezuela, when it comes to investment attractiveness.
Slow growth in capital projects
Bruggeman points out that the South African mining industry is not growing at the rate that it should be. It is lacking in development of greenfield projects and new expansions, while, on the other hand, other African countries like Namibia, Botswana, Zambia, the DRC, Ghana and several more are showing growth. He notes, “This of course poses new opportunities for South African manufacturers in the mining space. Although, currently only 8% of SACEEC exports go to Africa,” adding that the present rate of export to the region is due to competition from China and Europe, amongst other things.
“The situation is exacerbated by the fact that we do not have an ExIm (Export-Import) bank in South Africa. The European countries, China and the Americas do, and are able to borrow money at repo plus one or two, with an interest rate of 5/6%, while here in South Africa interest rates are at around 13% – a clear disadvantage for local exporters.”
He adds, however, that China’s economic grip is slowly easing on the African continent due to supply issues and unreliability in back-up service, again increasing opportunity for local exporters. “When it comes to critical items, the mines prefer to buy from South African manufacturers who have a reputation of solid reliability and are able to design and manufacture world-class products.”
There are also opportunities that lie in the African Continental Free Trade Area (AfCFTA) aimed at eliminating barriers to trade in Africa to significantly boost intra-Africa trade, particularly trade in value-added production – where Africa supports Africa.3 Bruggeman points out that, in principle, it is a good concept, being based on a similar premise to that of the EU, which has worked pretty well until the recent Brexit. There are a number of challenges that have emerged, however. One is that the GDPs of some African countries rely heavily on import duties and border taxes, and that there is also unfortunately an imbalance when it comes to the poorer countries, who do not have the same production capacity as some of the stronger countries, and therefore do not benefit to the same degree from the agreement. Another concern raised by some has been that the possible opportunity to travel visa-free raises concerns when it comes to the risks of a rise in illegal human trafficking.
Opportunities abroad
“The Export Council’s market is, however, a global one. We have been particularly successful in Australia, South America, America, Europe and Canada. In 2021 we exported R178-billion worth of machinery and equipment. Apart from the agriculture sector, our sector is the biggest exporter of goods in South Africa, adding around 4% to GDP,” Bruggeman enthuses.
SACEEC is uniquely positioned to assist members to increase their international business and exports, offering extensive networking opportunities. Bruggeman explains, “Our initiatives include what we call ‘outward buying missions,’ which involve either attending international exhibitions with members or visiting overseas mines to make introductions to prospective customers. While ‘inward selling missions’ involve visits to South Africa by prospective clients and investors hosted by SACEEC.” The local Electra Mining Africa exhibition is a case in point, offering a perfect opportunity to showcase local manufacturing and export capabilities. SACEEC engaged with international delegates from countries such as the Netherlands, Russia, Peru, Chile and Ecuador, invited as guests by the council to the event in 2022.
The Local Southern African Manufacturing Expo run by SACEEC in partnership with Specialised Exhibitions, a division of the Montgomery Group, is another inward buying mission and a drive for localisation in the manufacturing space. Not only do these initiatives help to create jobs, drive investor relations and showcase a country’s abilities, but they also improve the economy as a whole, says Bruggeman.
He notes, “In addition to this, where we have well-known and well-established members in a country, we facilitate the introduction of a new member to industry through that hub. This reduces the timelines for our members entering an existing market.” The time it takes to set up exports to a new country for a member is therefore reduced drastically from around two years to sometimes as little as four months. The member meets the right decision-makers, first time round, fast tracking the process of vendor approvals and more, as the existing member making the introductions is already a trusted vendor.
Local challenges
Despite the wins, SACEEC members face great challenges in the country. Bruggeman says, “It is no secret that the South African government has failed industry dismally.” He runs through a list of the difficulties members face daily: The South African government dictates to business – BEE laws, minimum wage etc – and yet, does not deliver a basic stable environment required for a manufacturer to function optimally. From malfunctioning rail, border posts, ports and harbours to unreliable power; from interest rate hikes, unmanaged crime and bribery and corruption – still a challenge, even after state capture was outed – to the subsequent failing of SOEs like Eskom, Transnet, PRASA and Rand Water – “Our infrastructure is disappearing before our very eyes, and it is hurting the whole economy! We are a negative growth rate every quarter.”
All of these issues of course have ripple effects affecting member on-time delivery and service levels, as our manufacturers try desperately to adjust production schedules to Eskom loadshedding plans and attempt to manage production to avoid unplanned stoppages, which lead to machinery break downs causing yet more down time, or as they spend profits on petrol and diesel to deliver goods when the rail service fails them and they subsequently wait in queues to deliver goods, or wait for the ports to process component deliveries brought in to complete orders – and the list goes on he says.
Added to this, it is “disheartening” that South Africa’s ports rank as some of the least efficient globally owing to a lack of infrastructure and materials handling equipment and the afore-mentioned lack of logistics capacity.
“Overseas, on the other hand, in the Netherlands for example, industry has an excellent relationship with the government and the manufacturing industry is whole-heartedly supported,” says Bruggeman.
Local government does not support local manufacturing: “USD98-billion worth of goods were imported into South Africa in 2021, across all sectors of the economy, from China alone last year. If the country were to invest those funds in manufacturing locally, we could create work for 13 million people, or more. Imagine if we could employ that many additional people, who in turn support another 10 souls each?”
However, the South African manufacturers have risen above these challenges and have looked for new global markets. “Our members have made their targets by exporting – and are doing it well. Our Exporter of the Year award showcased 23 exporters who exported over 50-billion rand alone.” South African manufactured mining equipment is very specialised and therefore sought after. The machines are robust and can operate in extreme environments. We are not a mass-production market and are very niche – everything is specialised and tailored to customer needs. “We are renowned for our quality, reliability, and after-market service. And that is where the South African export excellence and success lies,” Bruggeman concludes.
References
- https://saceec.com/
- https://www.fraserinstitute.org/sites/default/files/annual-survey-of-mining-companies-2021.pdf
- https://au-afcfta.org/